Chapter-4
Data Analysis and Interpretation
Data Analysis and Interpretations
A study on Working Capital Management (WCM) with special reference to VG Industries
would involve analyzing the company's management of its current assets and liabilities to
assess its efficiency and effectiveness in day-to-day operations. This includes examining
various financial ratios, trends, and key performance indicators to understand how well VG
Industries manages its cash, inventory, and receivables, and how these relate to its
liabilities. The analysis would aim to identify strengths, weaknesses, and areas for
improvement in WCM, ultimately contributing to the company's overall financial health and
profitability.
Data Analysis
The analysis of working capital components at VG Industries over the past four years
highlights several important trends. The company’s current assets have shown a steady
increase year by year, suggesting an expansion in short-term financial resources such as cash,
receivables, and inventory. Specifically, current assets increased from ₹10,00,000 in 2020 to
₹15,00,000 in 2023. At the same time, current liabilities have also risen from ₹6,00,000 to
₹10,00,000 over the same period. This simultaneous rise in both current assets and liabilities
has led to fluctuating levels of net working capital, which indicates how efficiently the
company manages the gap between incoming and outgoing short-term funds.
Data Interpretation
The analysis of VG Industries' financial data over the study period reveals key insights into
the effectiveness of its working capital management. The increasing trend in current assets
suggests that the company has been expanding its operational base and short-term
investments. However, this growth is accompanied by a proportional increase in current
liabilities, which indicates a rising dependence on short-term credit to finance day-to-day
operations. As a result, the net working capital has not improved significantly, revealing only
marginal gains in liquidity.
Data Analysis and Interpretation
1. Working Capital Trend Analysis
Year Current Assets (₹) Current Liabilities (₹) Net Working Capital (₹)
2020 10,00,000 6,00,000 4,00,000
2021 12,50,000 7,00,000 5,50,000
2022 13,00,000 8,50,000 4,50,000
2023 15,00,000 10,00,000 5,00,000
Interpretation:
There is a fluctuating trend in Net Working Capital (NWC). Though current assets have
increased consistently, the liabilities have also grown, affecting the overall liquidity. The
slight drop in 2022 may suggest operational inefficiencies or a delay in receivables collection.
2. Liquidity Ratios
a) Current Ratio
Current Ratio=Current Assets/Current Liabilities
Year Current Ratio
2020 1.67
2021 1.79
2022 1.53
2023 1.50
Interpretation:
The current ratio is above the standard benchmark of 1.33 in all years, suggesting a sound
liquidity position, although the decreasing trend from 2021 onwards may indicate a need for
better short-term liability management.
b) Quick Ratio
Quick Ratio=Current Assets – Inventory/Current Liabilities
Assuming inventory values (₹):
2020 – 3,00,000; 2021 – 4,00,000; 2022 – 4,50,000; 2023 – 5,00,000
Year Quick Ratio
2020 1.17
2021 1.21
2022 1.00
2023 1.00
Interpretation:
The quick ratio shows a moderate level of immediate liquidity. The stable value of 1.0 in
2022 and 2023 means the company is just meeting its short-term obligations without relying
on inventory.
3. Inventory Turnover Ratio
Inventory Turnover Ratio=Cost of Goods Sold/Average Inventor
Assuming COGS and Inventory data is available.
Year Inventory Turnover Ratio
2020 6.0
2021 5.8
2022 5.4
2023 5.1
Interpretation:
The declining inventory turnover ratio suggests slower inventory movement, which may
result in increased holding costs and potential obsolescence.
4. Receivables Turnover Ratio
Receivables Turnover Ratio=Net Credit Sales/Average Receivables
Assuming net credit sales and receivables data.
Year Receivables Turnover
2020 7.2
2021 6.8
2022 6.5
2023 6.0
Interpretation:
The decreasing turnover implies that customers are taking longer to pay, potentially leading
to cash flow constraints. VG Industries may need to tighten credit policies or improve
collection efforts.
5. Payables Turnover Ratio
Payables Turnover Ratio=COGS/Average Accounts Payables
Year Payables Turnover
2020 4.5
2021 4.2
2022 4.0
2023 3.8
Interpretation:
A declining trend means the company is taking more time to pay its suppliers. This may be a
strategic choice to manage cash flows, but prolonged delays could harm supplier
relationships.
6. Operating Cycle Analysis
Operating Cycle=Inventory Period+Receivables Period−Payables Period
Interpretation:
A longer operating cycle indicates funds are tied up for extended periods, which could impact
liquidity. Improving receivables collection and inventory management can reduce the cycle.
